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Asian hub

China’s NEV sector: Domestic brands lead the charge

Published 17 July 2024 in Asian hub • 6 min read

The market share of Chinese independent brands has risen from 35.8% in 2020 to 56.1% in the first five months of 2024. Read on to see which are succeeding and how they are doing so 

Over the past three years, China’s passenger car market has undergone significant structural changes, particularly in the New Energy Vehicle sector (defined herein as dedicated manufacturers of NEV vehicles, or ‘pure play’ NEV brands). After years of accumulating technological knowledge, policy support, and the rapid development of intelligent technology, the new energy vehicle industry – characterized mainly by electrification, intelligence, and automation – has quickly risen to gradually replace the position of internal combustion engine (ICE) vehicles in China’s passenger car market.

Despite the Chinese government’s ambitious targets and supportive policies for NEVs, many traditional foreign automakers have been sluggish in adapting to this change. Notably, some German and Japanese brands are not included in this study because their pure play NEV presence is not strong, or they do not have an exclusive brand dedicated to NEVs, only offering certain new energy models or series. Instead, we see only one foreign brand, Tesla, among the top performers. In addition, government support for domestic manufacturers has also led to tariffs on EVs in export markets like the US and EU.

Domestic brands represented by BYD and Geely, along with the new forces in NEV manufacturing such as Xpeng, Li Auto, and NIO, have emerged as the leaders in this sector. Together, they have propelled the rapid rise of Chinese domestic brand automobiles, enabling China to achieve preeminence in the automotive field.

Our approach emphasizes variables that are both highly relevant and obtainable, enabling us to construct a well-rounded and objective analysis, and leveraging the most critical data points to deliver a coherent and concise evaluation of each company's position and future potential.

The shift in market share is striking. In 2020, Chinese domestic brands held only 35.8% of the market, with the rest mainly occupied by German, Japanese, and American brands. By 2021, this figure had risen to 41.2%, and by 2023, it reached 51.9%. During the first five months of 2024, Chinese independent brands claimed an impressive 56.1% of the market share.

These significant structural changes demonstrate China’s firm determination to address global environmental issues and achieve carbon neutrality and emission reduction targets in personal mobility. The 2024 IMD China Company Transformation Indicator (CCTI) reveals that top-ranking companies in the NEV sector excel in Early Innovation, R&D efforts, and Business Diversity. This suggests that companies that are quick to respond to changing consumer behavior and technological advancements can adjust their product pipeline to meet new demands and secure market share.

Overall, the CCTI for NEVs shows that these Chinese enterprises invest heavily in supply chain, manufacturing, and innovation capabilities. The result is likely to be a future characterized by breakthroughs in AI technology, bringing China’s NEVs closer to true intelligence and automation, thus strengthening the sector’s leadership position in the future global automotive field.

NEV sector key factors

The selection of companies and factors in our analysis of the New Energy Vehicle (NEV) sector is meticulously designed to address the unique context of these entities. Many NEV companies operate as subsidiaries or extensions of larger parent organizations, leading to a consolidation of their financial outcomes within the broader results of their parent companies. This integration can obscure a clear understanding of the individual subsidiary’s performance and historical trajectory. Therefore, our approach emphasizes the selection of variables that are both highly relevant and obtainable, enabling us to construct a well-rounded and objective analysis, and leveraging the most critical and accessible data points to deliver a coherent and concise evaluation of each company’s position and future potential within the NEV sector. 

A full description of each key factor is in the Methodology section of the white paper. 

NEV sector key factors

Company perspectives

BYD has become the most comprehensive all-around player in the NEV field. The company has performed well across all five factors, from Sales Volume and China Policy Power to Technology Innovation and Business Diversity. BYD’s success is rooted in its diverse product range, from economy models to premium products, together with its innovation in NEV technology and vertical supply chain management. In 2023, BYD’s market share in NEVs expanded to 31.9%, marking a 4.8 percentage point year-on-year increase. The company has also expanded to over 70 countries, with exports growing by 334.2% to 242,765 units in 2023.

Tesla is a leader in Early Innovation. As a trailblazer in the EV field, Tesla’s advancements in technology, especially in autonomous driving capabilities, have firmly established its dominance. The Model Y became the world’s best-selling car in 2023, making Tesla the leading foreign electric vehicle brand in the Chinese market. Tesla’s Shanghai Gigafactory played a crucial role in promoting its production capacity, contributing to 947,000 vehicle deliveries in 2023, accounting for more than half of its global production capacity.

NIO has maintained a steady and uniform presence across rankings from Business Success to China Policy Power. NIO has achieved success through differentiated positioning in the luxury car segment and an innovative battery service model. In 2023, NIO delivered 92,186 premium SUVs and 67,852 premium sedans, establishing its position as a leader in the premium EV segment. NIO’s battery leasing and swap model, supported by over 1,600 patent technologies and 2,350 battery swap stations worldwide, has completed a total of more than 35 million battery swaps.

Xpeng and Li Auto, along with other domestic brands, have also become key players in this sector. Together, they have propelled the rapid rise of Chinese domestic brand automobiles, enabling China to achieve preeminence in the automotive field. The market share of Chinese independent brands has risen from 35.8% in 2020 to 56.1% in the first five months of 2024.

ChinaIndicator-SpiderChart_NEV-DIGITAL

Five key insights from the CCTI for the NEV companies

1. Innovation and R&D Prominence

High-flyers in Innovation and R&D, like Tesla and BYD, lead the industry, with Tesla showing the way in Early Innovation and setting the direction for the future, while BYD follows closely with its innovative spirit. These companies are investing heavily in new technology, which is crucial for staying ahead in this dynamic market.

2. China Policy Power plays an important role

Companies like BYD and Xpeng wield considerable influence in shaping or aligning with government strategic directives. This policy sway is particularly advantageous in China’s landscape, where government backing can provide significant support to the NEV sector. Conversely, this government support has also led to tariffs on EVs in export markets like the US and EU.

3. Differentiation is the key

Chinese NEV brands have adopted differentiation strategies to compete in a market previously dominated by German and Japanese brands. Xpeng focuses on technology, particularly in autonomous driving. Li Auto targets family users with its range-extender technology, while NIO emphasizes its luxury positioning and innovative battery services.

4. Rapid market share growth for domestic brands

The market share of Chinese independent brands has grown significantly, from 35.8% in 2020 to 56.1% in early 2024. This growth demonstrates China’s determination to address global environmental issues and achieve carbon neutrality in personal mobility.

5. Investment in supply chain and manufacturing capability

Leading companies have scored well in R&D, Technology Innovation, and Business Diversity. These enterprises make significant investments in supply chain, manufacturing, and innovation capabilities in the NEV field, likely leading to future breakthroughs in AI technology and strengthening China’s leadership position in the global automotive field.

The challenge to maintain a competitive edge

Companies in the NEV sector must have a deep understanding of technological trends, a strong commitment to innovation, and the ability to adapt quickly to changing market demands. As the industry continues to evolve, companies that can balance technological advancement, market differentiation, and policy alignment are likely to win domestically in this rapidly growing sector. The sector’s export efforts may however be frustrated by regulatory sanctions as some foreign governments impose tariffs on China’s EV exports.

Discover the full results: IMD China Company Transformation Indicator 2024

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